of any contingent beneficial interest which shall not become absolutely vested in possession or enjoyment prior to said July first, nineteen hundred and two.

*

Circular No. 627, relative to refunding legacy taxes as provided in the first paragraph; July 3, 1902. (T. D. 543.)

The act of June 27, 1902, relative to the refund of tax collected on contingent beneficial interests not vested prior to July 1, fixes no time within which the claim for refund must be filed with the collector.

If the two years' limit is applicable under section 3228, R. S., it must be two years from the passage of the act and not two years from payment of the tax. (Thacher v. United States, United States Circuit Court, District of Massachusetts, 149 Fed., 902; 26 Op. Atty. Gen., 194.)

Attorney General's opinion as to vested interests, August 1, 1902. (T. D. 570, modifying Circular No. 630, T. D. 552; 24 Op. Atty. Gen., 98.) The act of June 27, 1902, made the 1898 tax inapplicable to an estate not probated before July 1, 1902. (Hunnewell v. Gill, 257 Fed., 857.) Conditions precedent to suit to recover tax illegally collected, under sections 3226 and 3228, not applicable as to inheritance taxes imposed by act of June 13, 1898, if taxpayer has complied with section 3 of act of June 13, 1898, and section 2 of act of July 27, 1912, and presented claim for refund; but provision for repayment under latter act not satisfied where claim has been filed by attorney for trustee or for administrator de bonis non of decedent, the original executrix having paid the tax without protest on behalf of the cestui que trust. (Rand v. United States, 249 U. S., 503; T. D. 2886.)

Right to possession or enjoyment of an estate for life or years was properly taxed as a legal unit in its entirety. The present right or interest in such estates is in no sense “contingent," and taxes thereon are not refundable under this act. (United States v. Fidelity Trust Co., 222 U. S., 158; T. D. 1741.)

No tax was assessable on legacies which had not become absolutely vested in possession or enjoyment prior to July 1, 1902; where testator died May 24, 1902, and under State law payment of legacies could not be demanded until the expiration of a year, legacy taxes collected before that time were collected on contingent interests not absolutely vested and should be refunded. (McCoach v. Pratt, 236 U. S., 562; T. D. 2171.)

Where judgment to recover succession tax collected under act of June 13, 1898, was for only part of claim, this judgment not a bar to suit against United States in Court of Claims to recover unpaid residue; claim for refund filed in August, 1903, to recover such succession tax is sufficient; claim made September 7, 1916, for refund of taxes collected under act of June 13, 1898, claim rejected October 3, 1916, and suit brought in Court of Claims January 23, 1917, is not barred by six-year limitation period allowed by section 1069, R. S. (Sage v. United States, 250 U. S., 33; T. D. 2885.)

A legacy in trust where trustee is to pay net income to legatee for term of years creates a vested interest in the beneficiary in such income for the term, which legacy, if it became vested before July 1, 1902, and amounted to $10,000 is assessable under act of June 13, 1898, and amendments thereof. (Muenter v. Union Trust Co., 195 Fed., 480.)

Where trust continued 11 years, during which period beneficiaries received annual income and corpus did not vest prior to July 1, 1902, only value of annual income is taxable, and act of June 27, 1902, is available to trustee who paid tax on entire corpus. (Rosenfeld v. Scott, 232 Fed., 509.)

United States District Court has jurisdiction of suits against the United States based upon act of July 27, 1912; this act not limited to refund of legacy taxes assessed under section 29 of war-revenue act. (United States v. Hvoslef, 237 U. S., 1; T. D. 2186.)

Where testator died in December, 1901, life estate became vested in enjoyment at once on death of testator and subject to the tax. (Westhus v. Union Trust Co., 164 Fed., 795.)

No legacy tax accrued under act of June 13, 1898, where the testator died prior to that date. (Penn. Co. for Insurance on Lives and Granting Annuities v. McClain, 105 Fed., 367; T. D. 343.)

Legacy taxes paid on contingent interest, which did not become vested prior to July 1, 1902, are required to be refunded by act of June 27, 1902, irrespective of their legality or whether they were voluntarily paid or not; and a failure to present the claim within the time limited by such section will not bar an action thereon. (Thacher v. United States, 149 Fed., 902; 26 Op. Atty. Gen., 194.)

The period of limitation in section 3228, R. S., does not apply to the refunding act of June 27, 1902; the act is not a part of the revenue system; no protest required. (United States v. Shipley, 197 Fed., 265.)

When beneficial interests become vested. (United States v. Jones, 236 U. S., 106; T. D. 2138. McCoach v. Pratt, 236 U. S., 562; T. D. 2171.)

[Act of July 27, 1912 (37 Stat., 240).]

AN ACT Extending the time for the repayment of certain war-revenue taxes erroneously collected.

Be it enacted, etc., That all claims for the refunding of any internal tax alleged to have been erroneously or illegally assessed or collected under the provisions of section twenty-nine of the act of Congress approved June thirteenth, eighteen hundred and ninety-eight, known as the war-revenue, tax, or of any sums alleged to have been excessive, or in any manner wrongfully collected under the provisions of said. act may be presented to the Commissioner of Internal Revenue on or before the first day of January, nineteen hundred and fourteen, and not thereafter.

SEC. 2. That the Secretary of the Treasury is hereby authorized and directed to pay, out of any moneys of the United States not otherwise appropriated, to such claimants as have presented or shall hereafter so present their claims, and shall establish such erroneous or illegal assessment and collection, any sums paid by them or on their account or in their interest to the United States under the provisions of the act aforesaid.

Act July 27, 1912, restricts one claiming refund to suit against the United States, and does not authorize one against an internal-revenue collector under Rev. St., sections 3220, 3226-3228. (Hunnewell v. Gill, 257 Fed. 857.)

Conditions precedent to suit to recover tax illegally collected, under sections 3226 and 3228, not applicable as to inheritance taxes imposed by act June 13, 1898, if taxpayer has complied with section 3 of act of June 13, 1898, and section 2 of act of July 27, 1912, and presented claim for refund; but provision for repayment under latter act not satisfied where claim has been filed by attorney for trustee or for administrator de bonis non of decedent, the original executrix having paid the tax without protest on behalf of the cestui que trust. (Rand v. United States, 249 U. S., 503; T. D. 2886.)

United States District Court has jurisdiction of suits against the United States based upon act of July 27, 1912; this act not limited to refund of legacy taxes assessed under section 29 of war-revenue act. (United States v. Hvoslef, 237 U. S., 1; T. D. 2186.)

Right to refund of tax paid under section 29, act of June 13, 1898, barred unless claim presented to Commissioner on or before January 1, 1914. (Coleman v. United States, 250 U. S., 30.)

Where claim filed and rejected prior to July 27, 1912, not necessary to file new claim under this act on or before July 1, 1914, as basis of suit. (Sage v. United States, 250 U. S., 33; T. D. 2885.)

SEC. 6. [Act of April 4, 1918 (40 Stat., 502, 505), amending act of September 24, 1917 (40 Stat., 288).] That any bonds of the United States bearing interest at a higher rate than four per centum per annum (whether issued under section one of this Act or upon conversion of bonds issued under this Act or under said Act approved April

twenty-fourth, nineteen hundred and seventeen), which have been owned by any person continuously for at least six months prior to the date of his death, and which upon such date constitute part of his estate, shall, under rules and regulations prescribed by the Secretary of the Treasury, be receivable by the United States at par and accrued interest in payment of any estate or inheritance taxes imposed by the United States, under or by virtue of any present or future law upon such estate or the inheritance thereof.

United States bonds bearing interest at a higher rate than 4 per cent to be accepted at par and accrued interest in payment of estate tax. (T. D. 2705.)

CHAPTER 7.

SPECIAL EXCISE TAX ON CORPORATIONS.1

[Sec. 38, act of August 5, 1909 (36 Stat., 112).]

Rate of tax; organizations excepted.
Net income; how determined.
Annual returns required from officers
of corporations; computation of tax.
Procedure when returns are incor-
rect; failure to make returns; books
may be examined; attendance of
witnesses compelled.

Assessment of tax; addition to tax

for false returns; payment of tax; penalty for failure to pay; notice; limitation; penalty; interest. Returns to be filed in office of Commissioner of Internal Revenue.

Government officer or employee divulging information; penalty. Failure to make true returns; false returns; penalty; revenue laws made applicable for collection, etc., of tax; jurisdiction United States courts to compel testimony and production of books, etc.

Appropriation for expenses of collect

ing corporation tax. Returns open
to inspection by order of the Presi-
dent.

Additional employees authorized.
Refund or abatement of penalty taxes.

Corporations subject to tax; rate of tax; organizations exempted.

SEC. 38. That every corporation, joint stock company or association, organized for profit and having a capital stock represented by shares, and every insurance company, now or hereafter organized under the laws of the United States or of any State or Territory of the United States or under the Acts of Congress applicable to Alaska or the District of Columbia, or now or hereafter organized under the laws of any foreign country and engaged in business in any State or Territory of the United States or in Alaska or in the District of Columbia, shall be subject to pay annually a special excise tax with respect to the carrying on or doing business by such corporation, joint stock company or association, or insurance company, equivalent to one per centum upon the entire net income over and above five thousand dollars received by it from all sources during such year, exclusive of amounts received by it as dividends upon stock of other corporations, joint stock companies or associations, or insurance companies, subject to the tax hereby imposed; or if organized under the laws of any foreign country, upon the amount of net income over and above five thousand dollars received by it from business transacted and capital invested within the United States and its Territories, Alaska, and the District of Columbia during such year, exclusive of amounts so received by it as dividends upon stock

Repealed by act of Oct. 3, 1913 (p. 761).

of other corporations, joint stock companies or associations, or insurance companies, subject to the tax hereby imposed: Provided, however, That nothing in this section contained shall apply to labor, agricultural or horticultural organizations, or to fraternal beneficiary societies, orders, or associations operating under the lodge system, and providing for the payment of life, sick, accident, and other benefits to the members of such societies, orders, or associations, and dependents of such members, nor to domestic building and loan associations, organized and operated exclusively for the mutual benefit of their members, nor to any corporation or association organized and operated exclusively for religious, charitable, or educational purposes, no part of the net income of which inures to the benefit of any private stockholder or individual.

Corporations engaged in business after approval of act are amenable to the provisions of section 38, although having gone into liquidation prior to December 31, 1909. (T. D., 1615.) Foreign steamship companies liable. (28 Op. Atty. Gen., 211.) Real estate trusts liable. (28 Op. Atty. Gen., 235.)

64

Limited partnerships under Pennsylvania statutes, if organized for profit and having a capital stock represented by shares, although no certificates of stock" are issued, are liable to the tax. (28 Op. Atty. Gen., 189.)

Mutual savings banks under West Virginia statutes having no capital stock not liable to tax. (28 Op. Atty. Gen., 189.)

A corporation which owned an office building leased the property for 130 years and reorganized, practically going out of business, its sole authority being to hold title and receive and distribute the rentals or proceeds of sale, if the property should be sold, not liable to the tax. (Zonne v. Minneapolis Syndicate, 220 U. S., 187; T. D. 1687.)

Certain real estate trusts in Massachusetts not liable. Congress intended to embrace only such corporations and joint-stock associations as are organized under some statute, or derive from that source some quality or benefit not existing at the common law. (Eliot v. Freeman; Maine Baptist Missionary Convention v. Cotting, 220 U. S., 178; T. D. 1686.)

The act of 1909 must be construed as imposing an excise tax upon the right to do business in corporate form, and the income from the business, which is the measure of the tax upon the right, may be estimated upon the assumption that the form is to be regarded as the reality; a debt released in favor of a corporation by its sole stockholder should be treated as capital rather than income, though a debt so released should be treated as adding to the corporate income. (United States v. Oregon-Washington R. & Nav. Co., 251 Fed., 211.)

This law was adopted before ratification of sixteenth amendment to Constitution and imposed an excise tax on doing of business by corporations; not in any sense a tax on property upon income merely as such, nor upon the income arising from the conduct of business unless it be carried on by the corporation. (United States v. Whitridge, 231 U. S., 144.)

Partnership associations organized under laws of Pennsylvania possess every privilege and power essential to a corporation and are liable to the tax imposed by this act. Mutual savings banks organized under laws of West Virginia, while in a sense organized for profit, have not a capital stock represented by shares, and are not subject to tax. (28 Op. Atty. Gen., 189.)

Where profit is one of the substantial objects of company incorporated to provide and operate a terminal for certain railroads, it is within the statute. (Boston Terminal Co. v. Gill, 246 Fed., 664; T. D. 2671.)

A mutual protective association, collecting assessments from which to pay death or injury benefits to members and carrying surplus into reserve fund for use in meeting extra losses in a later year is an 66 insurance company" "doing business" within the meaning of the act. "Fraternal

benefit societies" distinguished. (Commercial Travelers Life & Accident Association v. Rodway, 235 Fed., 370; T. D. 1918.)

Old Colony Railroad Co., whose demised roads were operated by the New York, New Haven & Hartford Railroad Co., as lessee, and not as agent, held not a corporation "engaged in business" during the years 1909-1912, inclusive, within the meaning of this act. (Old Colony Railroad Co. v. Gill, 257 Fed., 220.)

The corporation tax act of 1909 was a tax upon the doing of business with the advantages which inhere in the peculiarities of corporate organization. (Gauley Mountain Coal Co. v. Hays, Collector, 230 Fed., 110.) The true test to determine whether a corporation organized for a business purpose is engaged in business within the meaning of the corporation tax act is whether it is continuing the body and substance of the business for which it was organized, or whether it has retired from it and turned it over to another. (Traction Companies v. Collectors of Int. Rev., 223 Fed., 984.)

A corporation to be subject to the tax must be organized for the purpose of doing business and must be actually engaged in business. (Emery, Bird, Thayer Realty Co. v. United States. 198 Fed., 242; 237 U. S. 28; T. D. 2188.)

Where a corporation is doing the business for which it was organized, the income derived from such business is taxable under the act. (Rio Grande Junction Ry. Co. v. United States, 51 Ct. Cls., 274.)

An operating agreement by which a street railroad company surrenders its own and leased lines to the possession of another company for operation for a term of 999 years, in consideration of annual rentals and the payment of interest on its indebtedness and that of its lessors, does not differ in legal effect from a lease, and the lessor is not subject to the excise tax imposed by the corporation tax law. (McCoach, Collector, v. Continental Passenger Railway Co., 233 Fed., 976.)

Tax imposed on corporations by act of 1909 is not a direct tax, but an excise on the privilege of doing business in a corporate capacity. (Anderson v. Morris & E. R. Co., 216 Fed., 83.)

That railroad corporation maintained its organization, held annual meeting of stockholders, elected directors and officers, and appointed an executive committee, would not be sufficient to show that it was "engaged in business;" issuance of bonds to its lessee for completion of branch road would not amount to resumption of business; payment of rent by lessee corporation not to lessor, but to its stockholders and bondholders, could not prevent the rent so paid being subject to taxation under the act of 1909, if the act was otherwise applicable. (Anderson v. Morris & E. R. R. Co., 216 Fed., 83.)

Railway corporation which had leased its railroad to another company operating it exclusively, but which maintains its corporate existence and collects and distributes to its stockholders the rental from the lessee and also dividends from investments, is not "doing business" within the meaning of the act. (McCoach . Minehill Railway Co., 228 U. S., 295.)

Corporation tax is imposed upon the doing of corporate business and with respect to the carrying on thereof, and not upon the franchises or property of the corporation irrespective of their use in business. (Id.) Dissolved corporations liable; assets subject to tax lien. (28 Op. Atty. Gen., 241; T. D. 1615. United States v. General Inspection and Loading Company, 192 Fed., 223; T. D. 1736; T. D. 1850.)

Building and loan associations exempt. (Pacific B. & L. Association v. Hartson, 201 Fed., 1011: T. D. 1830.)

The legislative purpose was not to tax property as such or mere conversion of property, but to tax the conduct of the business of corporations organized for profit by a measure based upon the gainful returns from their business operations and property from the time the act took effect. The suggestion that the entire proceeds of the conversion of capital assets should be still treated as the same capital, changed only in form and containing no element of income, although including an increment of value, is inconsistent with the general purpose of the act. "Income" imports something entirely distinct from principal or capital, either as a subject of taxation or as a measure of the tax, conveying rather the idea of gain